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Crim Final > White Collar Crime > Flashcards

White Collar Crime Flashcards

1
Q

White Collar Crime

A

A crime committed by a person of respectability and high social status in the course of his or her occupation - Edwin Sutherland

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2
Q

Can be committed…

A

Occupationally or Organizationally

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3
Q

Occupationally

A

” illegal activities among business and professional men”

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4
Q

Organizationally

A

“a violation of law regulating business, which is committed for a firm by the firm or its agents in the conduct of its business” (aka Corporate Crime)

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5
Q

Occupational Crime

A

Committed by a group of individuals for their own benefits, does not represent everyone
○ Unprofessional Conduct and Malpractice
- Investment and Securities Fraud

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6
Q

Occupational Crime Examples

A 
• Internet Fraud
• Tax Fraud
• Political Corruption
• Blue Collar Crime
• Employee Fraud
- White-collar Crime and Legal Sanctions
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7
Q

Churning

A

making unneccesary trades to generate higher commission

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8
Q

Organizational or Corporate Crime

A

white-collar crimes committed with the support and encouragement of a formal organization, and intended to advance the organization’s goals (active support, machinery or an entire corporation)

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9
Q

Is all White Collar Crime committed by Upper-Class?

A

NO!

  • (for ex.,) your garage mechanic may defraud you by changing for work that has not been done and it may be difficult to separate the organization and occupational components of many white collar crimes
  • A key element of social class is the power to commit major white-collar crimes that only ownership and authority positions in occupational and organizational structures can make possible
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10
Q

Costs of White-Collar Crime

A
  • The financial costs are enormous, far exceed cost of ‘street’ crime
  • Formal organization allows crimes of great magnitude compared to person acting alone
  • Also causes many deaths/injuries, outnumbers murder (ex: 1/3 due to asbestos that no one informed the workers of)
  • However, most offences are not dealt with under criminal law, and penalties may be very light even if they admit to the them
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11
Q

“Corporate Homicide”

A

–> Swartz argues that these should be recognized as murder - “corporate homicide”, although small fines are the most anyone is held accountable for

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12
Q

Social Class and Crime

A
  • Corporate Homicides may occur more frequently among particular employers in particular industries
  • Common acts of delinquency are positively related to class while more serious forms of delinquency are negatively related
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13
Q

Street Crime vs. Corporate Crime

A
  • An average of more than two deaths a day occur as a result of work place injuries
  • Manufacturing, construction, transportation & storage and mining are responsible for 63% of all fatalities
  • The study finds that sexual assault and other sexual offences cost $4.8 billion
  • Over 90% of the victims were females
  • Victims bore most of the costs for all five types of crime: $10.6 billion
  • Criminal justice system and third-party costs far behind.
    Overall, the five types of street crimes cost $12.7 billion
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14
Q

5 Categories of Violent Crime

A

assault, criminal harassment, homicide, robbery, sexual assault and other sexual offences

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15
Q

Cost of Criminal Justice

A

In 2011-2012:

  • The federal, provincial and territorial governments spent $20.3 billion (1.1% of GDP) on criminal justice, comparable to the budget of National Defence
  • Expenditures split 27/73 between the federal government and the provinces ($5.5 billion and $14.8 billion).
  • Provincial security $7.9 billion
  • White collar crime costs us more than banks
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16
Q

Street Crime vs. Corporate Crime in the US

A
  • Robberies accounted for an estimated $409 million in losses in 2011.
  • The Worldcom scandal involved at least $175 billion
  • An average of 16,000 Americans are victims of homicides every year while 56,000 die annually on the job or from occupational diseases
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17
Q

Why do higher Status People Commit Crimes?

A

3 Factors:

  1. ) Competitive spirit (Competition for prosperity, wanting to do well)
  2. ) Arrogance (Excessive sense of self)
  3. ) Sense of entitlement
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18
Q

What Sociological Factors enable WCC?

A
  • Major white collar crimes are highly complex and secretive schemes that require expertise.
  • Existing criminal law focuses on street crimes rather than white collar crimes
  • The effects of white collar crime are often indirect
  • Public and political leaders are often preoccupied with violent crimes
  • Drug offences also receive significant law enforcement attention thus diverting valuable resources
  • Suspects are well-resourced and highly placed; therefore, prosecution is often lengthy, expensive and difficult
  • Middle and upper class bias in the criminal justice system
  • The conventional “elements of crime” are often missing, therefore, there is difficulty in establishing that a crime has been committed
  • Widespread public perception of white collar offences as moral failures rather than criminality
  • Hard to prove mens rea with corporate crime. Cannot prove the person who died (if someone did) was intended “target”, hard to even prove actus reus as no action necessarily caused it
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19
Q

Ex. of WCC

A

Case of Doctor in the US who tried to have his partner assassinated, he was involved in a deal with his childhood friend but his friend cheated him, he hired a hitman who was an undercover FBI, he was sentenced to house arrest because he was well respected in the community and they supported him, as well he lost his entire lifes savings unfairly

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20
Q

Examples of Corporate Crimes

A
  • Hyundai and Kia (US), Nov. 2014: Fined $100 mil. For false advertising regarding fuel economy of their vehicles
  • HSBC (Belgium), Nov. 2014: Accused of “Fraud, money laundering, criminal association and illegal exercise of the profession of financial intermediary”
  • BP (US), 2012: Find $1.256 bil. For environmental and related offences
  • GlaxoSmithKline - $956 mil. (marketing offenses) 2012
    Pfizer (US), Sept 2009: Fined $2.3 bil. For illegally promoting its Bextra painkiller and other drugs
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21
Q

Juristic Persons

A

corporations are liable to the same laws as natural persons, treating them differently raises practical difficulties for legal enforcement and punishment

22
Q

Executive Disengagement

A

(seen in Enron doc.) may be criminogenic –> “The custom by which lower level employees assume that executives are best left uninformed of certain decisions and actions of employees, or the assumption that executives cannot be legally expected to have complete control over their individual staff”

23
Q

Organization and WCC

A
  • Positions of ownership and authority in modern corporations carry with them a freedom from control
  • The law treats corporations as juristic persons
  • The corporate structure also diffuses responsibility, so white-collar criminals are often not held accountable - no one is responsible for something everyone should be responsible for: no mens rea
24
Q

Criminogenic Market Structure

A

An economic market that is structured in such a way that it tends to produce criminal behaviour

25
Q

Criminogenic Market Structure

A
  • This refers to the pressure on people in the organization to produce a level of profit that cannot be achieved by acting legally and ethically
  • People higher up distance themselves from what they are doing: using a “forcing model”: high volume/low per-unit profit
    Industries with a high rate of violation include oil & gas, mining, auto and pharmaceutical: they are in and of themselves criminogenic, misbehaviour is routine and unquestioned
26
Q

Large Scale of Corporations

A
  • Wheeler and Rothman categorized white-collar offenders into 3 groups: Individual Offender, Occupational Offender and those who committed offences in which both were ingredients (occupational offenders)
  • Organizational offenders make a lot more money because they have a larger scope of power and influence, individuals cannot attain this level
  • The structure of the modern corporation allows a power imbalance to prevail in which those individuals at the top experience a relative freedom, while those at the bottom often experience pressure applied from the top that encourages various kinds of white-collar crime –> Can be used to perpetrate bigger and better crimes
27
Q

Ex. of Bribery in International Business

A

(OECD) released results of a study in 2014

  • Analyzed 427 cases of bribery in international business
  • Nearly two-thirds of cases occurred in just 4 industries:
    • Extractive (oil and mining, 19%)
    • Construction (15%)
    • Transportation and Storage (15%)
    • Information and Communication (10%)
28
Q

Who is involved in International Bribery?

A
  • Senior executives were involved in more than half the cases:
    • Many companies provide their senior executives with stock options that allow the executive to purchase shares in his or her company at a later date for a price that is guaranteed at the time options are issued, they also receive bonuses
    • Chief executives played an active role in 12%
    • They either paid the bribes themselves or authorized them, the OECD found
    • Petrogas in Brazil, the current President was head of the company
29
Q

Who is the target in International Bribes?

A
  • Public sector employees and those working for state-owned companies
  • They were promised, offered or given bribes in 80% of the cases
  • These included top politicians, ex: Govt. Ministers, Presidents of State Companies
    Officials working in customs, health and defence were also likely to be on the receiving end
30
Q

Accounting Scandals: Enron

A
  • Enron 7th largest U.S. Company - primarily involved in trading gas and electricity - investors lost $63 Billion
  • Used illegal accounting methods (Mark-to-Market) to make it appear that profits were increasing
  • New model of trading on future prices worked at first but they took greater risks and it broke down, to keep things growing they took illegal measures including selling company assets to themselves and showing these as profits
  • Also tried to hide debt by transferring them to outside partnerships that Enron actually established
  • Took large payouts as company was failing but encouraged people to keep investing as they took all the money left out of Enron
  • Arthur Anderson accounting firm ignored violations because it wanted Enron consulting contracts
  • Several Canadian banks among others financed Enron: CIBC paid $2.4 billion in 2005 for allegedly helping Enron to hide losses
31
Q

Accounting Scandals: Worldcom

A
  • Largest U.S. long distance phone company - investors lost $175 billion
  • Admitted to overstating earnings by $3.8 billion over 15 months
  • Inflated profits by delaying the writing off of expenses instead of deducting them
  • Arthur Anderson again the accountants - Anderson went out of business after the scandals
    Worldcom founder Bennie Ebbers now serving 25-yr jail term
32
Q

Accounting Scandals: Bernard Madoff

A
  • Founded the Bernard L. Madoff Investment Securities in 1960
  • Turned his wealth management business into a “massive Ponzi scheme”
  • $65 billion lost ($18 billion of investor money)
  • Arrested in 2008
    Serving 150 years in prison
33
Q

Ponzi Scheme

A

A fraud in which old investors are paid with the funds invested by new investors. When the scheme runs out of new investors it collapses, investors are solicited through the promise of high returns on investments and are initially paid dividends however the funds paid out are not from actual investment. Indeed, the money is not invested. Instead payouts come from contributions of new investors

34
Q

Accounting Scandals: Canada’s Nortel

A
  • In 2000, Nortel was the most valuable company in Canada – John Roth
  • Financial statements overstated revenues so it looked like the company was very profitable
  • Shares eventually dropped from $124 to $1 and many investors lost huge amounts
  • While some shareholders lost 99%, John Roth retired and cashed in most of his shares
  • Executives were highly paid. Civil charges have been laid against some.
  • Investors lost $300 billion
    Filed for bankruptcy in 2009
35
Q

Financial Collapse of 2008

A
  • Major stock market crashes and unemployment
  • Bankrupted several countries
  • Mainly due to major financial institutions taking excessive risks
  • NINJA mortgages: No income, No job or assets (normally these people would never get mortgages because they would be expected to default) –> Goldman Sachs even benefitted from the mortgages they were selling because in separate transactions they bet against the mortgages
    U.S taxpayers were forced to pay to bail out many of these companies
36
Q

Consumer Safety Issues

A
  • Over the past 40 years, products have become safer because of consumer movement & government action
  • In 2007, several incidents of unsafe Chinese products, excessive use of led, some employees involved were hung (Contaminated pet food, Counterfeit Colgate toothpaste, Children’s toys: Elmo, Big Bird, Thomas the Train) –> Criminogenic Market Structure as a result of Globalization
  • Manufacturing has moved offshore, but North American companies & Governments still have to ensure safety and quality
  • In the cases above, both government and industry failed – why was no one inspecting or regulating these products?
37
Q

Safety Issues: Westray Mine Explosion

A
  • 26 killed
  • Inquiry conclusion - not an accident but the result of managerial incompetence and negligence
  • Company violated safety rules and Govt. inspectors did not enforce them
  • Under existing law, nobody was liable
  • New law in 2003 to hold directors and managers accountable for safety
38
Q

Monopolistic Enterprises

A

Any corporation that controls all, or the majority, of the market for a particular product or service

39
Q

Anticombines Law

A

In order to protect the principle of competition, valued by all liberal, capitalistic societies, laws have been created to prevent and punish corporations that work together to reduce competition

40
Q

Legal Sanctions

A
  • Corporations have limited liability, so their owners and directors are not personally responsible for many types of corporate misconduct
  • Damage judgements or financial penalties have limited impact on managers (BP has now paid $42.2 billion in damages/compensations for the 2010 Gulf of Mexico oil spill – doesn’t affect anyone’s salaries so it’s worth it)
  • Some companies have individuals whose only job is to ensure that bills/laws being passed don’t affect the company
  • Many harms committed by high status or corporate offenders are not criminal offences
  • There appears to be a move toward tougher legal sanctions but charges must be laid before sanctions are imposed and the power of the people being prosecuted makes this problematic
  • Even if they obtain prison sentences, they typically get parole early on
  • Citizens are often more concerned about violent crime so that is what is investigated, white collar crime investigations are lengthy and costly
41
Q

Occupational Crime: Unprofessional

A

2 issues: misconduct and failure of organizations to deal with misconduct

42
Q

Why is occupational crime hidden?

A
  • Often hidden because it is dealt with by professional associations privately
    For instance, the society is now less tolerant of the way the Catholic church has dealt with sexually abusive priests and governments ignoring professional misconduct
43
Q

insider Trading

A

using knowledge not available to people outside the company to profit from stocks

44
Q

Ex. of Insider Trading

A

Mark Cuban, owner of Dallas Mavericks charged with insider trading allegations on Nov. 17, 2008 )avoided a loss of $750,000)
- Mr. Cuban was found not guilty on October 16th, 2013
Martha Stewart: Avoided a loss of $49,673 through insider information. Received 5 month prison sentence and two year supervised release

45
Q

“Pump and Dump” Scams

A

“Pump and dump” scams - Bre-X Minerals Ltd, Calgary. – “Salting”: adding gold or silver to ore in its site in Busang, Indonesia: Stock promoters take a worthless company, invent a story about it and tell it to get people to buy the stock
- Established in 1989. Share price rose to $286.50 per share. Had $4.4 billion market capitalization
- Went bankrupt in 2002
Nobody was found guilty of any wrongdoing , 2 of the main people died and 1 was acquitted

46
Q

Internet Fraud

A
  • Spam e-mail
  • Hacking company sites
  • Not delivering articles on e-bay
    Using people’s credit cards
47
Q

Tax Fraud

A
  • Many employees such as restaurant servers do not report income that is not recorded by employers (tips) “underground economy”
  • Construction companies avoid GST and PST(taxes) by getting cash payments
    Also includes exaggerating income tax deductions
48
Q

Political Corruption

A
  • Bribery
  • Influence peddling (using status to lobby for an organization)
  • Misusing government funds (misapplication, misappropriation: basically stealing)
  • Repressing dissent
  • Denying human rights
  • Violating election rules:
    Mulroney gave his supporters gov’t jobs
49
Q

Blue Collar Crime

A
  • Trades people working “off the books” to avoid taxes

- Some business such as auto repair, plumbing, electricians do unnecessary work to charge more

50
Q

Employee Fraud

A
  • Almost all companies victimized
  • Taking kickbacks from suppliers in exchange for contracts, creating phony invoices, stealing company property and stealing cash from the company
  • The U.S. Chamber of Commerce estimates that U.S. employers lose $20-$40 billion a year due to employee theft
  • 6% of business revenues lost to fraud every year
  • Most fraud committed by “honest” employees (no criminal record until caught)
  • Only 12% had a criminal record
  • 30% of all business failures are caused by employee theft (USCC)
  • Very large losses in the financial industry (Baring’s Bank, Phoenix Trading Research) – rogue traders

Crim Final (6 decks)

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